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US-China Trade concerns


The U.S. and China started the latest round of trade talks involving Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer, and Chinese Vice Premier Liu He. The three senior officials discussed Chinese purchases of agricultural products and changes to critical Chinese economic policies.

On the release side, the producer price index ex-food and energy month to month (November) came in at 0.3 percent, while the expected number was 0.1. The PPI year to year came in at 2.7 percent when the read was at 2.5 percent.

The US dollar index fall is helping the Lonnie as well, given that the CPI numbers in the US came in at the same level as expected. Market participants are waiting for Canadian consumer price index numbers to be released this week to have a better view of where the USD/CAD is heading next.

Eurozone investor confidence dropped negative for the first time seen December 2014 in a move that doesn’t come to as surprise to many given the uncertainty across Europe and where we currently sit in the economic cycle. Divisions within Italy are also beginning to emerge between Conte, Tria, Salvini and Di Maio as the first two look to persuade the others that the budget deficit target should be lowered. Elsewhere in France, Emmanuel Macron has promised to increase the minimum wage 7% in 2019 and subsidized by the government. As mentioned previously this move alongside the u-turn on fuel tax rises could place France within the scopes of the European Commission regarding its own budget deficit.

It was another dramatic week in UK politics on Thursday as Prime Minister, Theresa May, survived a vote of no confidence brought upon her by members of her own Conservative Party. It was confirmed that the Tory backbench 1922 Committee had received the 48 letters needed from its MPs to trigger a vote of no confidence.

With little on the economic calendar to drive direction the Aussie took its cues from off-shore sources. The fallout from the Huawei CFO arrest and the almost 5% decline in the S&P500 for the week saw global markets turn decidedly risk-averse. The Aussie was not spared from the sell-off, falling steadily throughout the week.

The WSJ reported that China was drafting a replacement for the Made in China 2025 policy and are planning on further opening their borders to foreign companies. The move has been touted as a significant olive branch to the US as the contentious policy has led to alleged intellectual property theft and forced technology transfers. Adding to the positive news from the trade war was President Trumps commitment to not raising tariffs until he finds out whether the two sides could reach a deal. He also mentioned that he’s happy to meet President XI again. Lastly, the Huawei CFO was granted bail in Canada and Trump has confirmed he would intervene if it would help achieve a trade deal with Chin

The biggest influence on the NZD at this time is still the US-China relations among uncertainty over the trade talks.

The NZD fell throughout Tuesday trading session to bottom out at a one week low of 0.68311, before opening at 0.68527 this morning.